But, after reading Ha-Joon Chang's latest comment piece in the Guardian entitled "It's time to start talking to the City", I think it's maybe time that I added a third theme. Chang, who is the author of the excellent "23 things they don't tell you about capitalism", included the following gems in his piece.
"According to William Lazonick – a leading authority on this issue – between 2001 and 2010, top UK firms (86 companies that are included in the S&P Europe 350 index) distributed 88% of their profits to shareholders in dividends (62%) and share buybacks (26%).In april 2008, Nicolas Sarkzoy annouced that "in the next fifteen days" he would implement a reform that he called "one third, one third, one third" rule. According to this proposal, company profits should be split with one third for the employees, one third for investment, and one third for shareholders.
During the same period, top US companies (459 of those in the S&P 500) paid out an even greater proportion to shareholders: 94% (40% in dividends and 54% in buybacks)."
It's a nice idea, but complete fantasy. In his five years as president, Nicolas Sarkozy has done virtually nothing to get this idea imposed. Indeed, a couple of years ago, the Canard Enchainé (again!) reported that one semi-public French company (France Telecom, I think) actually paid out four thirds (133%) of its profits in dividends. They managed that by borrowing the money to pay the dividends. It's complete lunacy.
I posted a comment on Ha-Joon Chang's piece where I said the following:
"I presume that the whole reason for having a stock market is so that companies can raise capital. In other words, by going public, a company can get a substantial amount of money that it might then use for investment.
But, here's a question for Ha-Joon Chang and any other economist. If company raises 10 million by going public, but then pays 94% of it's profits in dividends over the next decade, what is the effective rate of interest that they have been paying on the money they got? Answers on a postcard please.
If it costs more to finance via the stock market than by borrowing from a bank, then is there any point in having a stock market at all?
So, maybe my next campaign for economic reform will be to propose that we simply scrap the whole idea of publicly-owned companies. No stock markets. All the shares in the company should be transfered to employees and ex-employees. Comments very welcome.
And, finally, what would be the effect of just abolishing the stock market completely? Would it prevent the economy working? Or would it, as I suspect, mean that companies would end up using their profits for investment and paying their employees, as they should do?"